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Obama takes tough stand on fiscal cliff

Steven Hurst

US President Barack Obama is ready to cut federal spending but won't make a deal with the Republicans until they agree to raise taxes on wealthy Americans and specify their demands for spending cuts, Treasury Secretary Timothy Geithner says.

If the White House and Congress can't reach agreement by January 1, the income tax rate for all Americans will rise significantly and deep cuts in government spending will be triggered.

Economists say this will drive the economy back into recession and cause a spike in already high unemployment.

"The ball really is with them now," Geithner, one of the White House's chief negotiators, said during appearances on five Sunday television talk shows.

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On Thursday, Geithner presented congressional leaders with Obama's post-election blueprint, but House Speaker John Boehner, leader of the Republican-controlled lower chamber of Congress, dismissed the plan as "not serious".

As outlined by administration officials, the plan calls for nearly $US1.6 trillion ($A1.54 trillion) in new tax revenue over the next decade.

It proposes $US600 billion in spending cuts, including $US350 billion from health programs. It also contains $US200 billion in new spending on jobless benefits, public works and aid for struggling homeowners - and would make it virtually impossible for Congress to block Obama's ability to raise the debt ceiling.

"I was just flabbergasted," Boehner said, describing his meeting with Geithner. The Speaker said time had been lost so far "with this nonsense".

But Geithner, in interviews that were taped on Friday, offered a somewhat rosier view. "I think we're far apart still but I think we're moving closer together."

He called the back-and-forth "normal political theatre", voicing confidence a bargain could be struck in time, and said all that was blocking it was Republican acceptance of higher tax rates on the wealthy.

"It's welcome that they're recognising that revenues are going to have to go up. But they haven't told us anything about how far rates should go up ... (and) who should pay higher taxes?" Geithner said.

He said so far Republican proposals had demonstrated "political math, not real math".

Republican leaders have said they would accept higher tax revenue overall, but only through what they call tax reform - closing loopholes and limiting deductions - and only coupled with tough measures to curb the explosive growth of Medicare, Medicaid and Social Security.

Medicaid is the government health insurance program for the poor. Social Security is the federal pension available to retirees.

But Geithner insisted there was "no path to an agreement (without) Republicans acknowledging that rates have to go up for the wealthiest Americans".

He also said the administration would discuss changes to Social Security "in a separate process", not in talks on the fiscal cliff.

Geithner said if Republicans did not think Obama was cutting enough spending, they should make a counter-proposal.

"They might want to do some different things. But they have to tell us what those things are," he said.

Under current laws, Congress must approve raising the government's ability to borrow. Until last year's standoff, which resulted in a lowering of the country's credit rating, the debt ceiling had been raised as a matter of course regardless of which party controlled the White House or Congress.

Geithner voiced sympathy for Republican leaders, saying they were caught between the voters' endorsement of higher taxes on the rich and a House Republican caucus that thinks all tax increases are job-killers.

"They really are in a difficult position," he said. "And they're going to have to figure out their politics of what they do next."

In the past week, Obama has held a series of campaign-style appearances - including one in a swing district in Pennsylvania - urging politicians to accept a measure passed by the Democratic-controlled Senate extending the tax cuts enacted during the administration of President George W Bush for all but the top two per cent of earners.

He'll continue the effort when he meets state governors on Tuesday and speaks to the Business Roundtable on Wednesday.